Sebi's paper mulls changes in methodology for calculating household savings in securities market

New Delhi: Markets regulator Sebi's working paper on Wednesday proposed changes in the computation methodology for capturing household savings through the Indian securities market to improve data accuracy.

"The revision in methodology will improve the quality and accuracy of data by capturing the actual values and covering the currently non-included segments/financial instruments in the securities market," the working paper suggested.

The paper proposed three changes to the computation methodology -- first, redefining the categories of investors; second, broadening the types of instruments these investors use; and third, adding new components that are not included in the current approach.

This came after it was noticed that the savings of households through the Indian securities market are not captured fully through the existing methodology of computation as the Indian securities market has undergone several structural in the past decade.

Further, the saving pattern of Indian households has similarly changed over time.

Under the existing methodology, the Reserve Bank of India (RBI) considers the actual data relating to mutual fund investments sourced from Sebi and AMFI, while the data relating to equity and debt segments are based on estimations or formulas, which attempt to derive the extent of savings through such segments.

Further, certain segments and products in the Indian securities market are not considered in the existing computation.

In the category of investors, the working paper has suggested the inclusion of all domestic individual investors and HUFs, regardless of income or investment size.

It also suggested to include Non-Profit Institutions Serving Households (NPISHs), such as NGOs, trusts, and charities.

The existing methodology includes retail, HNIs, HUFs, and individuals.

On instruments considered, it has proposed to include investment data of real estate investment trusts (REITs), infrastructure investment trusts (InvITs) and alternative investment funds (AIFs). Currently, these data are not considered.

For equity and debt instruments, it has been proposed to include actual amounts from both primary and secondary markets. Net investments in equity and debt by households and NPISHs will be computed daily and aggregated yearly.

At present, only primary market data is considered.

For mutual funds and ETFs, it has been suggested to include net flows into mutual funds and ETF transactions in the secondary market. Currently, only net flows into mutual funds are considered.

Also, the working paper has suggested including additional components for primary and secondary markets.

For the primary market, the paper has recommended adding preferential issuances, offer-for-sale (OFS), private placements, municipal debt, securitised debt instruments, and listed SRs.

For the secondary market, it has been suggested to add equities, debt (capital market, RFQ, OTC), REITs, InvITs, mutual funds, and ETFs.

The proposed changes aim to provide a more comprehensive view of household savings by including a wider range of instruments, more accurate investor categorisation, and more detailed market data.

As per the working paper, the actual granular data can be made available by Sebi to the RBI and RBI to the Ministry of Statistics and Programme Implementation (MoSPI) for household savings through the Indian securities market to be reckoned appropriately.

The RBI's existing methodology for compiling household savings through securities markets involves two main components -- resource mobilisation (flow data) and holding data (stock data). For resource mobilisation, the RBI considers equity, debt, and mutual funds.

Data on equity and debt are sourced from the Sebi's monthly bulletin, and 35 per cent of primary market equity issuances (IPOs, FPOs, OFS, Rights) and 40 per cent of public debt issuances are assumed to be mobilised by households.

For mutual funds, actual household investments from Sebi have been used since FY 2018-19. For holding data, the assets under management (AUM) by High Net-worth Individuals (HNIs) and retail investors in mutual funds are considered, with data sourced from the Association of Mutual Funds in India (AMFI).